Shop around before buying an extended electronics warranty

In a 2001 episode of The Simpsons, Homer discovers his dumbness
is due to a crayon that was crammed up his nose and into his brain
as a child.

But unable to handle life as a normal, intelligent person after
the crayon is removed, he has a new powder blue crayon inserted
into his cranium.

Homer proves his renewed blissful ignorance by shouting,
"Extended warranty? How can I lose?"But in truth, buying an
extended warranty on your new TV, computer, cellphone or camera is
not necessarily an act of Homeric hubris.

You just need to shop around.

Extended warranties are a huge business.

Shoppers are predicted to spend $1.3 billion on extended
warranties for electronics and appliances this holiday season,
according to industry journal Warranty Week.

Many of those sales will occur at the cash registers of retail
stores where otherwise well-educated shoppers unthinkingly agree to
inflated warranties.

"Consumers will spend months and months looking for the best
deal [on an electronic gadget], waiting for it to go on sale," said
Geoff Green, president and chief executive at Dallas-based Extended
Warranty Group.

"And then that same person will spend double what they should on
the warranty."

Extended Warranty Group runs Electronic Warranty.com, which
sells extended warranties on a variety of consumer electronics
items and home appliances.

Green said many big-ticket electronics items in stores such as
Best Buy are discounted so heavily that they make little or no
profit for the company.

So retailers have to make a profit on extended warranties.

Because most people don't know how much an extended warranty
should cost, they buy whatever the retailer offers.

For example, Best Buy sells a Samsung 40-inch 1080p LCD
television for $754.99.

A two-year "Geek Squad LCD TV Protection Plan" for that TV costs
$99.99. But ElectronicWarranty.com will sell you a three-year
warranty on the same TV for $89.99.

As a general rule, any extended warranty that costs 25 percent
or more of the price of the item being covered is overpriced, Green
said.

Consumer Reports, which estimated recently that store-bought
extended warranties deliver a profit margin of 50 percent or more
for the store, is even more stringent.

The organization says 20 percent of the purchase price of the
covered item is the max that anyone should pay for an extended
warranty.

"In general, we have found extended warranties to be a bad deal
for the customer and have long advised against them," Consumer
Reports said in its Money Blog in November.

"The most cautious consumers might want to consider an extended
warranty for a repair-prone brand, provided that the warranty is
both inexpensive and comprehensive and the cost of repairs tends to
be high."

For some electronic products, almost all brands are
"repair-prone."

SquareTrade.com, another independent warranty seller, said in a
report last month that 31 percent of 30,000 new laptop computers
covered by the company's warranties failed in the first three
years.

Asus, Toshiba and Sony were deemed to have the most reliable
laptops, but all had mechanical malfunction rates above 15 percent
in the first three years.

SquareTrade also reported initial indications that popular
low-cost netbooks have even higher malfunction rates.

Consumers seem to be aware that computers are particularly prone
to problems.

The Service Contract Industry Council reported that 42 percent
of laptop and desktop users in 2008 bought an extended warranty for
their machines, up from 37 percent in 2007.

In some cases, extended warranties make sense simply because
manufacturer warranties are so skimpy, Consumer Reports said.

"Apple, for example, has long provided a stingy 90 days of phone
support on its products, including computers, iPods and iPhones,"
the organization said on its Money Blog. "That makes the company's
AppleCare extended warranty (which provides three years of support)
worth at least considering - even if the main reason for doing so
is to address the limitations of the included warranty."

Green at ElectronicWarranty.com said first-generation
technologies are also good candidates for extended warranties,
since many times the manufacturers aren't aware of defects that the
initial products might have.

Consumer Reports also suggests shoppers check with their credit
card companies, since many card companies offer free extended
warranties on products purchased with their cards.

Also, before you buy a warranty, ask for details on how repairs
are handled.

Will the company pick up your broken TV or computer, or do you
have to ship it back? Will the company replace your broken device
with a new one after a certain number of repairs?

For complex items like home theater equipment, will the repair
company reconnect the cables and make sure it's configured
properly?

Indeed, there are occasions when buying an extended warranty
really is about as smart as jamming a crayon up your nostril.

"I went into Staples recently and bought a calculator for my son
for $79, and they asked me if I wanted the warranty for $39," Green
said with a laugh. "I said, 'I'm going to self-insure that.' "
COMPARING WARRANTIES

Electronics retailers make much of their profit from selling
extended warranties. Although you can get good deals on gadgets in
a store, you might be better off buying your extended warranty on
them elsewhere. Here's a look at four gadgets sold at the nation's
biggest electronics retailer, Best Buy, comparing the cost of the
store extended warranty with ones available from independent
warranty sellers.

To post a comment, log into your chosen social network and then add your comment below. Your comments are subject to our Terms of Service and the privacy policy and terms of service of your social network. If you do not want to comment with a social network, please consider writing a letter to the editor.